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Bitcoin Price to $40,000 After Fed Rate Announcement? —Key Indicators

By:
Ibrahim Ajibade
Updated: Nov 1, 2023, 15:17 GMT+00:00

Bitcoin (BTC) price could break above $40,000 as positive historical signals have emerged ahead of the November 1 FOMC Fed Rate meeting

Bitcoin Price to $40,000 After Fed Rate Announcement? —Key Indicators

In this article:

Bitcoin Price Insights:

  • Bitcoin (BTC) price could break above $40,000 as positive historical signals have emerged ahead of the November 1 FOMC meeting. 
  • US economy policymakers (The Federal Reserve) are expected to hold short-term interest rates static at the current 5.50% level, sending the US economy into the longest rates restriction phase since 2022.  
  • Historical data shows corporate Bitcoin investors have often reacted positively to contractionary rate decisions.

Bitcoin (BTC) price has consolidated at the $34,000 territory over the past week. However, positive historical signals have emerged ahead of the Federal Open Market Committee (FOMC) on Wednesday, November 1, 2023. 

US Economy Set to Enter Longest Rates Restriction Phase Since 2022 

Following a negative sequence of the Covid-19 global pandemic, geopolitical tensions between Russia vs. Ukraine and supply-chain crisis in China, the US economy plunged into a technical recession as consumers grappled with double-digit inflation.  

In response, The Federal Open Market Committee (FOMC), —the body responsible for directing monetary policy through open market operations —rapidly raised interest rate by 525 basis points over a 16-month period between March 2022 and September 2023.

US Fed Funds Rate, 2019 - 2023 | Source: Federal Reserve
US Fed Funds Rate, 2019 – 2023 | Source: TradingEconomics / Federal Reserve

However, after rates reached a 22-year peak of 5.5% in July 2023, the Fed announced a landmark rate pause at the last meeting on September 20, 2023. 

How Will Fed Rate Decision Impact Bitcoin Price?

Similar to other risk-on assets such as stocks and commodities, changes in the US Fed Rate often has impact Bitcoin prices significantly. However, the impact largely depends on the wether the Fed has raised, paused or cut rates. 

Typically, when inflation rises, central banks and policy administrators will raise interest rates to mop-up excess money supply. This was observed in the US Fund rate chart above, between March 2022 and September 2023. 

The resulting increase in yield on government bonds effectively makes risk-on assets such as stocks and cryptocurrencies less-attractive to investors. 

For instance, last year, The Fed hiked rates by 425 basis points between March and December 2022. During that period, BTC price to dipped by 67% from $47,000 to $16,000. 

Impact of Fed Rate Changes on Bitcoin (BTC) Price
Impact of Fed Rate Changes on Bitcoin (BTC) Price | Source: TradingView

On the flip side, as inflation cools, The Fed is logically expected to pause the hikes, and begin to ease toward a cut. This is to prevent over-bloating government debts payable to bondholders, and also avoid dampening the economy’s productive activity in the long-term. 

While announcing the September 20 rate pause, the Fed chief Jerome Powell noted that inflation is still too high. As a result, strategic investors now anticipate that outright rate cuts are still a few months away. 

Nevertheless, The US Federal Reserve is now expected to announce another pause on  short-term interest rates  during the FOMC meeting on November 1. This will send US economy into its longest rates restriction phase since February 2022. 

The resulting increase in money supply from will likely incentivize investors to redirect more capital into risk assets such as Bitcoin.

Although markets appear to have the news already priced in, historical data analyze above suggests that it could have far-reaching long-term impact on Bitcoin prices well into 2024. 

Hence, BTC holders can anticipate another leg-up toward the $40,000 range in the coming weeks.

About the Author

Ibrahim Ajibade Ademolawa is a seasoned research analyst with a background in Commercial Banking and Web3 startups, specializing in DeFi and TradFi analysis. He holds a B.A. in Economics and is pursuing an MSc in Blockchain.

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